Transcript TITLE

Non-regulated Interconnectors
NECA Seminar
Tuesday 8 December 1998
Opening Remarks
Stephen Kelly
NECA
Introduction
• Code provisions
• programme
• key issues
3
Obligations on promoter
•
•
•
•
establish connection agreements with NSPs
register as market participant
provide an access undertaking to ACCC
apply to NECA
4
Obligations on NECA
• establish rules for market participation
• within two years of market launch, develop
provisions to address financial risk to promoter
as a result of need for augmentation
5
Change in status
• provision to switch from non-regulated to
regulated link, subject to conditions
• meets Code criteria and technical standards
• passes “net public benefit” test
6
Programme
•
•
•
•
•
•
•
•
a role for entrepreneurial interconnectors?
a proponent’s perspective
introduction to working group proposals
market participation
structural and competition issues
extensions and alternatives
overall assessment
conclusions and next steps
7
Key issues
• generator competitors or TNSP companions?
• regulated and non-regulated links: can they coexist?
• hermaphrodite links: a freak of nature?
• access, market power: how light-handed can
we be?
• safe harbour provisions: smothering at birth?
8
WHY NON-REGULATED
INTERCONNECTORS ?
An advocacy statement ..
Stephen Orr
Hazelwood Power
A REGIONAL MARKET DESIGN
• NEM is regionalised - conscious choice
• Simplified version of full nodal pricing • few intra-regional constraints (in real
regions)
• mechanism to redefine if constraints occur
• Inter-regional constraints create heavy risks for
participants; market awakening 25 Nov 97
10
NEMMCO IRH PROCESS
• Settlement Residue Auction (SRA) process
developed as interim access to SR to underwrite
inter-regional hedges and mitigate IR risk
• Also developed view of the future, issues being:
• network performance drivers and standards
• firm inter-regional access - leading to IRHs
• regulatory risk for investing participant hence non-regulated interconnectors
11
ISSUES FOR PARTICIPANTS
• Particularly generators, but others too
• Interconnectors look like wires, but … ...
• They perform like competitors, ie • They introduce remote generation as new
entrants into a region
• Conversely they add remote load to a region
• They also potentially redefine the region
12
INVESTMENT RISK
• Investment criteria for regulated
interconnectors don’t match market criteria, eg:
• n-1 transmission reliability standard
• Demand with 10% probability of exceedance
• ACCC reviewing criteria for NEMMCO to
approve regulated status for interconnectors
13
INVESTMENT RISK contd
• Regulated interconnectors see little investment
risk - if transmission planner sees the need,
customers pay until next optimisation
• Even if investment rules become marketcommercial, regulated interconnector not at
risk of failure
• Hence, some propose higher discount rates for
regulated interconnector assessments
14
REASONABLE INVESTMENT
CERTAINTY
• Regulated interconnectors threaten the price
signals which underpin local generation and
demand-side investment = regulatory risk
• Generation/demand investor confidence up if
interconnector faces equivalent market risk
• “If you think it’s a good deal, you build it!”
“If you don’t, don’t ask the market to
underwrite your errors ………
15
NON-REGULATED
INTERCONNECTORS
• Are competitively neutral
• Reduce the need for central intervention
• Require a change in thinking away from
conventional interconnector perspectives
• Can be free-flowing and open like normal
transmission lines, or alternatively … …
• Can be actively traded in the market through
price-differential/volume offers
16
NON-REGULATED
INTERCONNECTORS
• Potentially remove the need for regulated
interconnectors at all, ie • if regulated rules changed to achieve
competitive neutrality, no for regulated
• if commercial hurdles not met, governments
and others can build NRIs, and take the risk
17
TODAY’S SESSION
• Reflects the initial results of efforts of a diverse
industry group to define the nature and
operation of non-regulated interconnectors
• The group has diverse views on some key
issues, but sufficient consensus on the
fundamentals to encourage others to join the
debate
18
A Proponent’s Perspective
Tony Cook
TransÉnergie Australia
Outline
• Code requirements
• DirectLink
• Transmission in a competitive market
20
National Electricity Code
Obligations of Proponents
• Clause 5.6.6 (f) requires a connection applicant,
in relation to a non-regulated interconnector,
to:
– apply to NECA in accordance with clause 3.10 to
determine the rules that will apply in terms of the
connection applicant’s participation in the market
as a market participant in relation to that
interconnector.
• TransEnergie Australia and NorthPower made
21
application to NECA on 1 October 1998.
National Electricity Code
Obligations of NECA
• Clause 5.6.6 (g) provides that, if an application
is made to NECA under clause 5.6.6 (f) (4),
NECA must determine those rules within a
reasonable time after receipt of the application.
22
DirectLink Features
•
•
•
•
180 MVA capacity between Qld and NSW.
DC technology.
1 January 2000 commissioning date.
Non-regulated interconnector
– Recoup costs through trading in financial
instruments tied to the interconnector capacity.
23
Geographic Location
Darwin
NT
QLD
WA
Brisbane
SA
DirectLink region
NSW
Perth
Adelaide
Sydney
Canberra
VIC
Melbourne
TAS
Hobart
24
Transmission in Competitive
Markets
• Objective:
– Provide sufficient transmission capacity to ensure a
competitive energy market, while fairly and
efficiently pricing the use of that capacity.
• Outcomes:
– Facilitate competition in:
• generation,
• transmission (as an alternative to local generation).
25
Transmission in Competitive
Markets
• Commercial framework for transmission
expansion:
– “Top Down” projects for reliability and competition
- determined by NEMMCO
– “Bottom Up” projects in response to energy price
differentials - proposed by developers.
26
Transmission in Competitive
Markets
• Top Down Projects
– Competitive tendering e.g. Victoria
• Bottom Up Projects
– Entrepreneurial interconnectors.
27
Benefits to Consumers and
Generators
• Effective competition in generation.
• Lower transmission costs.
28
Introduction to the Working
Group’s Proposals
John Howarth
VPX
WG’s Terms of Reference
• One of the group’s terms of reference is – “recommend rules to govern the participation of
entrepreneurial interconnectors in the national
electricity market and advise on implications for
other aspects of the market design such as network
augmentation criteria.”
– this is a problem - how can you write rules for an
unregulated interconnector?
– need to define the boundary of acceptable behaviour
23/02/98 without being prescriptive
30
WG’s Terms of Reference
• Addressed in three stages:
– identify “safe harbour” provisions
– define the degree of discretion used in other approvals
– define scope for future extensions and variations to the
“safe harbour” provisions
• This workshop is a result of the first stage and
some progress has been made on the other stages
• The work presented today is new and requires a
change in thinking - there are still many challenges
– inter-regional hedging
23/02/98
– completion of other stages etc
31
•
Other
Terms
of
Reference
Remaining Tasks
– “if possible recommend a practical and effective
implementation path for introducing firm link-based
inter-regional hedges, i.e. inter-regional hedges that are
underwritten by settlements residues and are as firm as
practicable against residual risks such as those
associated with network availability.”
– “advise on the scope and appropriateness of aligning
the inter-regional and intra-regional hedging provisions
with frameworks such as the transmission congestion
contract concept and others. This should include 32
23/02/98
identifying the implications for other aspects of the
What are “Safe Harbour”
Provisions
• Safe harbour provisions.
23/02/98
– A set of provisions conformance to which would
ensure an application’s approval. There is no
implication that non-conforming applications
would necessarily be rejected, although they would
not be assured of receiving approval.
– not code requirements but a set of criteria to judge
automatic acceptability.
– because we are naturally risk adverse the provisions
are conservative.
33
•
What are “Safe Harbour”
Obligations
Provisions
– Configuration limits
– Must be scheduled
– Must have controllable flow
– Pay network service charges
– Enter into connection agreements
– Exposure to costs and benefits of interconnector
– NEMMCO to have power to direct
– Subject to competition
– Sunset clause
– Subject to market power provisions
– Ring-fencing provisions
23/02/98
– Must make an access undertaking
34
What are “Safe Harbour”
Provisions
• Rights
– Entitled to the spot market revenue
– Can enter into Reserve Trader contracts
– Option to convert to regulated status
• Having fulfilled the obligations, the
entrepreneurial interconnector has access to
spot market revenue
23/02/98
35
Status of Working Group Paper
• The WG has not endorsed all the provisions
• There are still differing views
• However the WG has agreed that it is time for
wider consultation and exposure of the proposal
• WG may need to review provisions in the light of
feedback from this workshop
23/02/98
36
Post - implementation Review
• WG recommends post - implementation review
– > one application but,
– < 3 years
• Needed due to keep pace with innovation!
• Needed because the concepts are new and
quite different from other approaches therefore need to consider developments
23/02/98
37
Definitions
• Interconnector. A network element that connects
networks located in different regions of the
National Electricity Market (NEM).
• Entrepreneurial interconnector. An interconnector
for which there is an entitlement to derive income
through its participation in the spot market.
• Non-regulated interconnector. An entrepreneurial
interconnector for which there is no entitlement to
recover any revenue through regulated network
23/02/98
38
service charges.
Definitions cont’d
• Regulated interconnector. An interconnector
for which there is an entitlement to recover a
determined level of revenue through the
imposition of regulated network service
charges. There is no entitlement to retain any
additional revenues arising from the operation
of the interconnector in the spot market.
23/02/98
39
•
Definitions
cont’d
Hybrid interconnector. An entrepreneurial
interconnector for which there is an entitlement to
recover some revenue through the imposition of
regulated network service charges. As with other
entrepreneurial interconnectors, income may also
be obtained through participation in the spot
market.
• A mix of regulated and non-regulated has been
identified but further work required. This and
general areas where the safe harbour provisions
can be extended in the future will be the subject of
23/02/98
40
Rod Ward and Dave Roberts talk at 2:15pm
NECA WORSHOP ON
ENTREPRENEURIAL
INTERCONNECTORS
Introduction - End User Perspectives
Roman Domanski
Executive Director
Energy Users Group
23/02/98
Sydney Airport Sheraton
8 December 1998
41
Entrepreneurial Interconnectors
• Supportive of Concept
• Why?
– ‘virtual’ generator & competition for generators
– competition for TNSPs - ‘right’ to provide
– adds depth to NEM by strengthening links
between regions
– can help augmentation become more competitive
– consistent with reform
23/02/98
42
Safe Harbours
Simple, just park it
in this ‘safe harbour’
23/02/98
How do I stop my entrepreneurial interconnector
getting torpedoed?
43
‘Safe Harbors’ Concept
• Could go without rules, but
• Rules provide some certainty for a new concept
– certainty for investors, owners & customers
– may improve chances of getting proposals up
• Rules should not hinder proposals
• Need to be flexible enough to foster change
– but firm enough not to stop investment
23/02/98
44
Need for Debate
As rules are new and innovative, important to
expose to broader debate and get feedback.
Need to be prepared to modify SHP to take
account of informed comment.
Need to also consider links between this work
and ACCC review of regulated interconnectors
23/02/98
45
Competition Issues
• Market Power
– considerable discussion about threshold market
shares
•
•
•
•
Access
Ring Fencing
Hybrids
Conversion
23/02/98
These issues need broader input
46
The Future
• Monitor and review
• Adapt to practical experience & NEM/reform
goals:e.g.
– review requirement that flow must be
independently controllable
– perhaps move to calculating the price difference
with and without interconnector
• Should all future links be entrepreneurial
– intra- & inter-regional?
23/02/98
47
Market Participation
Stephen Wallace
Snowy Mountains Hydro-Electric Authority
Michael Green
Transend Networks Pty Ltd
Overview
• Market issues
–
–
–
–
bidding, dispatch and pricing
spot market revenues
system security
contracting
• Network issues
– configuration and controllability
– connection agreements and network pricing
49
Spot Market Participation
• Networks characterised by
– economies of scale
– short run marginal costs are insufficient to cover
costs of optimally sized interconnector
• Three models for interconnector operation
– passive participation
– bids capacity
– bids price differential (above marginal losses)
50
Interconnector Market Model
• Passive participation - due to economies of
scale is likely to encourage undersized links
• Bids capacity - subset of price differential
model
– a capacity bid is equivalent to bidding two prices,
$0 and VoLL, with the MWs bid at 0 the same as
capacity offered
• Bids price differential - best model
51
Bidding & Rebidding Price
Differentials
• Similar to generators or customers
• 10 prices for each direction (monotonically
increasing)
• For each price MWs of capacity offered for
each half hour
• Total capacity offered each half hour is equal to
link capacity
• Obliged to follow dispatch instructions and
provide PASA information
52
Dispatch & Pricing (SPD)
• Bidding model can be incorporated easily into
SPD framework
• Objective function is maximise
value of supply (demand bids dispatched)
- cost of supply (gen offers dispatched)
- cost of interconnector (link offers dispatched)
- cost of ancillary services
53
Dispatch & Pricing (Ctd)
• Link energy balance
export = import + link losses
(this brings in dynamic marginal losses for flows over link)
• SPD essentially the same as now but current
interconnector violation penalties approach is
extended to transport capacity bids
54
Spot Revenue (energy)
• Similar to other participants
• Metering at each terminal
• Prices at each terminal determined much the
same as for other participants
• Since flows may change direction or be highly
variable there is an issue concerning choice of
marginal loss factors
55
Spot Revenue (energy)
export
• Buys F1 energy in region 1 at spot price
adjusted for marginal losses, SP1 x MLF1
import
• Sells F2 energy in region 2 at spot price
adjusted for marginal losses, SP2 x MLF2
revenue = import - export
• Rev = F2 x SP2 x MLF2 - F1 x SP1 x MLF1
Note: There are problems with flows and prices on 5 minute
dispatch interval vs half hour averages
56
Marginal Loss Factors
(Prices for Energy at Connection Points)
• Many possible models for marginal loss factors
(MLFs)
–
–
–
–
–
fixed
variable with time of day/day of week/season etc
variable with direction of flow and 1 or 2 above
dynamic
nodal pricing of connection point (dynamic + intra
regional constraints)
57
Ancillary services
• Co-optimisation approach allocates
interconnector capacity between energy and
ancillary services
• Interconnector receives spot market and
ancillary services income like other participants
• Interconnector pays for ancillary services
• If optimal SPD will schedule ancillary services
to enhance flow
58
System Security
• Same as for generators & other participants
• NEMMCO has power to direct for system
security reasons
• When directed interconnector is compensated
in the same way as for other participants (fair
market value -ACCC)
• May be involved in Reserve Trader contracts
59
Contracting
• Actively operates in contract market
• Offers inter-regional hedges (IRHs)
• May have firm access compensation
arrangements
• Basically like any other participant
60
Conclusion
• Market operation is much like a generator
– bidding
– requirement to be scheduled and provide
information
– spot market revenue
– ancillary service income and charges
– subject to direction etc
• What about network connection, TUOS etc?
– Mike Green will reveal all
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TRANSEND NETWORKS PTY LTD
MICHAEL GREEN
CONFIGURATION NO. 1
Existing
Interconnection
Region 2
Region 1
Proposed
Interconnector
64
CONFIGURATION NO. 2

Two Terminal Between Regions
 Regional Definitions
 Network Service Charges
 Bidding & Scheduling
65
CONFIGURATION NO. 3

30MVA Minimum Capability
 In Line with Scheduled Generator, Clause 2.2.2
 Cross Zonal Boundary Windfalls
 Regulator Shopping
66
NEED FOR CONTROLLABILITY

Follow Dispatch Instructions

Avoid Adverse Impacts on other Network Elements
 Forms a Clear Basis for Settlements
67
FREE FLOWING
Interconnector Actual Flows Depend Upon:
Generator Dispatch

Customer Demands

Network Characteristics
68
ISSUES IF NOT CONTROLLABLE

Safe Harbour Does NOT Preclude This Option

Need to Develop Basis of Settlements

Need to Develop Basis of Compensation
69
CONNECTION AGREEMENTS

Service Levels

Connection Fees

Arrangements Subject to Negotiation
70
CONNECTION AGREEMENTS
CONNECTION FEES

Dedicated Entry/Exit Assets - Payable by Proponent

Attributable Agreed Deep Augmentation - Payable by Proponent

Transmission Use of System - Matter for Resolution
71
CONNECTION AGREEMENTS
ISSUES NO. 1

Is there a need for a level playing field between
regulated & non-regulated interconnectors?


Regulated Face Stringent Regulatory Tests
Non-regulated Face Connection Fees?

Must Provide for Efficient Investment

Interface with NECA Incidence & Allocation Review
72
CONNECTION AGREEMENTS
ISSUES NO. 2

See Appropriate Forward Looking Costs

See Appropriate Forward Looking Benefits

Difficulty With Identifying :
 Magnitudes of Costs/Benefits
 Duration of Costs/Benefits
 Funding of Benefit Rebates
73
CONNECTION AGREEMENTS
ISSUES NO. 3

Should non-regulated interconnectors result in
financial transfers between Network Service Providers?

Many Factors Drive Financial Transfers.
74
SUMMARY
MARKET ISSUES

Spot Market Revenue

Ancillary Services Revenue

Required To Be Scheduled

Able To Offer Into Market

Subject To NEMMCO Direction
75
SUMMARY
NETWORK ISSUES

Configuration

Controllable Flow

Must Enter Into Connection Agreements

Subject to Efficient Network Connection Fees
76
STRUCTURAL AND
COMPETITION ISSUES
Conversion to Regulated Status, Sunset Clause,
Market Power Issues
Stephen Orr
Hazelwood Power
CONVERSION TO REGULATED
STATUS
• Safe harbour should allow interconnector owner
to apply for conversion to regulated status at
any time
• Revenue entitlement assessed at the time
• Recognises uncertainty regarding nonregulated design at present - hence may
encourage investment
78
CONVERSION TO REGULATED
STATUS
• Also supports utilising economies of scale, eg
hybrid converts to fully regulated when justified
• Proponent must not be shielded from
commercial risks, eg mis-assessment of
demand or price
• Hence apply rules at the time
• No scope for strategic alternation
79
CONVERSION TO REGULATED
STATUS
• Note • If rules for regulated interconnector
investment change to match commercial
conditions,
• Then why would the non-regulated
interconnector owner want the change to
regulated status?
80
SUNSET CLAUSE
• Conversion to regulated status offers protection
to the non-regulated interconnector investor
• The sunset clause approach protects the
market as a whole from unexpected outcomes
• Suggest 15 years minimum reasonable approval
for long life, high cost interconnectors
• ACCC Code authorisation may limit approval
period to 2010
81
MARKET POWER ISSUES
• Active trading models create potential for
exercise of market power
• Economies of scale, easements etc may limit
scope for competitive interconnectors
• Cross ownership potential
• Hence we have considered control to maximum
of 35% of either interconnected areas as limit
for safe harbour
82
MARKET POWER ISSUES
• Concentration of control could be limited by
divesting rights to the revenue stream, if
operational control ring-fenced
• Cross-ownership with regulated interconnector
should be OK, provided ring-fencing in place
83
MARKET POWER ISSUES
• However ……… this proposal is arbitrary
• It excludes, for example, Delta and Macgen
immediately
• There is a serious question whether the market
rules should endeavour to anticipate and
constrain market power
• Perhaps safe harbour provisions should not be
specific - let ACCC decide case-by-case?
84
EXPOSURE TO COMPETITION
• No restriction on entry of competing regulated
and non-regulated interconnectors
• Providing they meet the criteria at the time
• This assumes level playing field through the
rules governing approval of regulated
interconnectors
85
Entrepreneurial
Interconnectors
Hugh Gleeson (United Energy)
&
Ken Brunette (Integral Energy)
23/02/98
86
Exposure to competition
• No restrictions on the entry of competing interconnectors (regulated or unregulated)
• Aim to achieve a ‘level playing field’ to ensure comfort
of consistency in regulation
• Various views
– (Generators) desire to force regulated augmentations to be
based on the same investment criteria as unregulated.
– (Retailers) preference to see a ‘stable playing field’, not
restrict regulated decision making.
– (Customers) desire to see most efficient (lowest cost)
generation
used first irrespective of geographic location87in
23/02/98
clause
• Initial approvalSunset
to operate
as a non-regulated interconnector and actively participate in the market
may be limited to a specific interval
– safeguard against undesirable unforeseen outcomes.
– proposed right to apply to convert to regulated status
and receive regulated revenue assessed on the deprival
value upon reaching the ‘sunset date’.
– fifteen year minimum approval proposed (by some of
group) as ‘appropriate’ to match level of investment.
– May in practice be shorter horizon as the ACCC Code
authorisation expires in 2010.
– No protection from effect of Code changes intended by
23/02/98 this clause
88
Ring fencing
• Isolation from the operations of any co-owned
regulated network business
– Ensure the operation is not influenced by
consequential profit or loss from the
nonregulated business.
– Concern regarding potential to influence timing of
outages (by related regulated network business) for
unreasonable financial advantage.
23/02/98
89
Submission of an access
undertaking
• Access undertaking to be in the form
specified in the Code
– Must be available in accordance with the Code.
– Applicable Code provisions will likely differ
from standard (as exist for regulated assets).
• Right to trade (as determined) in the spot market
• No right to receive regulated revenues (Chapter 6)
23/02/98
– ACCC acceptance of access undertaking to
protect the asset from declaration under the
Trade Practices Act.
90
Beyond the Safe-Harbour
Rod Ward - Delta Electricity
Beyond the Safe Harbour Overview
•
•
•
•
Purpose of Safe Harbour Provisions
Key Limitations of the Safe Harbour Provisions?
Trading non-controlled interconnectors
The Way Forward?
92
Purpose of Safe Harbour
• Conformance to ‘safe harbour’ provisions
should guarantee approval.
• There is no implication that non-conforming
applications would necessarily be rejected
93
Beyond the Safe Harbour
• Further work required to:
– explore the scope for further extensions and
variations
– define the degree of discretion for other
applications (within and beyond safe harbour)
94
Key Limitations of the Safe Harbour
Provisions - case examples
The provisions do not cover:
• intra-regional interconnectors
• non-transmission interconnector capacity upgrade
• free flowing AC links - loop and parallel flows
• participant or an interconnector controlling more than
35% of the capacity in either of the supply regions
• hybrid of regulated and non regulated interconnection
95
Key Limitations of the Safe Harbour
Provisions - case examples
The provisions do not cover:
• intra-regional interconnectors
• non-transmission interconnector capacity upgrade
• free flowing AC links - loop and parallel flows
• participant or an interconnector controlling more than
35% of the capacity in either of the supply regions
• hybrid of regulated and non regulated interconnection
definition of capacity and access to the market
(if controllable or switchable could be considered)
96
Key Limitations of the Safe Harbour
Provisions - case examples
The provisions do not cover:
• intra-regional interconnectors
• non-transmission interconnector capacity upgrade
• free flowing AC links - loop and parallel flows
• participant or an interconnector controlling more than
35% of the capacity in either of the supply regions
• hybrid of regulated and non regulated interconnection
Impact on the capacity of incumbents and competitive trading solutions
97
Interconnector Trading
• energy supplied to a region does not have to be
delivered by that interconnector - “inter-regional
capacity can be shared”
• an interconnector flow does not have to be controlled “inter-regional transfers is controlled by generator
loading in merit order”
98
Concept of “Notional Capacity”
• Parallel interconnectors treated as a single notional
interconnector
• revenues are split according to relative capabilities and
bids (notional dispatch)
• However, complexities arise when the capacity of an
incumbent is affected or loop flows occur.
99
Concept of “Notional Capacity”
Bidding
• Similar to generators
• 10 prices for each direction (monotonically increasing)
• for each price MW’s of capacity offered in each half
hour (total capacity equal to the link)
• Any regulated capacity bid at zero
• dispatch algorithm will dispatch lowest merit order
bids up to the “notional capacity” of all
interconnection capacity
• However, residual capacity could be “constrained off ”
100
Concept of “Notional Capacity”
Case Study - Capacity rights affected
Examples:
• New interconnector impacts the capacity of another remote
interconnector e.g the capacity of SA/NSW interconnector is
limited by flows on the NSW/VIC interconnector.
• Total capacity of two parallel interconnectors less than sum of
individual capacity.
Issues:
• Prior capacity rights - incremental capacity only recognised?
• No prior capacity rights - full competitive bidding and residual
capacity effectively constrained off ?
• Technical prerequisites?
101
• Firm access to network?
Loop Flows
Example:
• Additional complexity on parallel interconnectors where a
connection to a region at two remote points create loop flows.
Issues:
• current regional model inadequate - more regions or
progression to nodal model approach#
• prior rights to capacity become increasing complex
• complexities of notional capacity allocations would have to be
modelled, continuous assessed and resolved in dispatch
# loop flows could resolve to parallel flows
102
Key Limitations of the Safe Harbour
Provisions - case examples
The provisions do not cover:
• intra-regional interconnectors
• non-transmission interconnector capacity upgrade
• free flowing AC links - loop and parallel flows
• participant or an interconnector controlling more than
35% of the capacity in either of the supply regions
• hybrid of regulated and non regulated interconnection
anti-competitive conduct, control, timing of problem
103
Market Power
•
•
•
•
Why is an interconnector different to generation?
When is it likely to be material?
Is it ownership, control or cross-subsidy between competitive businesses?
Does it safe harbour anti-competitive behaviour of a substantial
interconnector - ACCC issue
Possible Solutions:
• provisions of the TPA appropriate to apply to all owners of interconnectors
• Transition requirement:
– assets ring-fenced with separate reporting requirements
– defined reasonable level of capacity contracts in the market
• Alternative - safe harbour applies to small interconnectors only, regardless
of ownership
104
The Way Forward
• Determine the principles to define capacity and the
market trading mechanisms for non-controlled
interconnectors
• Understand the application and merit of capacity
rights and develop firm access where one
interconnector affects the operation of another
• Better appreciate the market power implications of
interconnectors without unnecessarily restricting their
development
105
Key Limitations of the Safe Harbour
Provisions - case examples
The provisions do not cover:
• intra-regional interconnectors
• non-transmission interconnector capacity upgrade
• free flowing AC links - loop and parallel flows
• participant or an interconnector controlling more than
35% of the capacity in either of the supply regions
• hybrid of regulated and non regulated interconnection
David Roberts Presentation to follow
106
Hybrid Interconnectors
David Roberts
Basslink Development Board
Purpose
• Endorsement for the Concept
• Highlight Issues to be Resolved
• Commitment to Progress
108
Outline
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Reasons for Hybrid Interconnectors
Relevant Situations
Examples
Principles
Issues to Resolve
The Way Forward
Summary
109
Reasons for
• Economies of Scale
• Increase in Load Demand does not
Automatically Increase Value
• Beneficiaries not Necessarily Obvious
• Approval of Regulated
• Transition between Non Regulated and
Regulated
110
Relevant Situations
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Initial Trading may be Limited
Most Trading is One Way
No Market History to Support Non Regulated
Regulated Asset Owner unwilling to Develop
Non Regulated applies to become Regulated
111
Examples
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X% Regulated Y% Non Regulated
Enhancement to Existing Interconnectors
Regulated One Way Non Regulated the Other
Regulated at Certain Times Non Regulated at
Others
• Combinations
112
Principles
• Regulated Portion of an Interconnector can be
Defined
• Regulated Portion Subject to Rules for
Regulated Interconnectors (Including
Approval, Availability, Dispatch, Network
Pricing & Revenues, Settlements Residues &
IRHs etc)
• Remainder Subject to Rules for Non Regulated
113
Issues to Resolve
Who Defines Regulated Portion and How
Which takes Precedence
• Partial Outage
• Dispatch at Zero Price
Ring Fencing
• Required for Network Businesses
• Some Complexity with Hedge Contracts
114
Issues to Resolve
Non Linear Allocations
• Adjustment of Settlements Residue for
Allocation of Losses
• Required if Regulated and Non Regulated
contracts treated differently
Network Charges/Revenues
• Regulated Portion
• Non Regulated Portion
115
Issues to Resolve
Approval Criteria
• Look Ahead or Based on Market Results
• Who bears the Market Risk
Review of Regulated Portion
• Discretion for Adjusting up or Down
116
The Way Forward
• Depends on Arrangements for Regulated
Interconnectors (Approval, Settlements
Residue and Hedging)
• Also Dependent on the Rules for Non
Regulated Interconnectors
• Common Factors Needed
117
Summary
• Hybrid Interconnectors needed as a Bridge
between Regulated and Non Regulated
Interconnectors
• Simple Arrangements should be Possible which
could be Adapted to Different Situations
• Commitment to Progress Arrangements
118
Next Steps
Stephen Kelly
NECA
Next steps
• working group supplementary comments
• transmission and distribution pricing review
120
Review timetable
• publication of draft report
• consultation with key stakeholders
• publication of final report
Jan / Feb 1999
Feb/March 1999
end-March 1999
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